Bloomberg News

Magnit Profit Soars on New Stores, Russian Economy

August 31, 2006

OAO Magnit, Russia's second-largest supermarket chain by sales, said first-half profit soared more than five times as the company added new stores and rising wages helped lift food sales in existing outlets.

Net income surged to $20.9 million from $4.1 million a year earlier, the Krasnodar, Russia-based company said today in an e- mailed statement. Sales advanced 55 percent to $1.07 billion, in earnings to International Financial Reporting Standards.

Magnit added 182 new discount supermarkets and won more customers at existing stores as Russia's eighth year of economic growth boosted consumer spending. The company started the year with 1,500 outlets. Like-for-like sales, or revenue at stores open at least a year, advanced 12 percent in ruble terms, excluding value added taxation.

That allowed the company ``to comfortably upgrade our full year net sales expectations to $2.39 billion, excluding VAT,'' Chief Executive Officer Sergey Galitskiy said in today's statement.

The company's previous forecast was $2.3 billion for this year's revenue, excluding VAT, according to a prospectus issued by Deutsche Bank AG's Russian brokerage that organized the retailer's April initial public offering. Sales in 2005 totaled $1.58 billion.

Magnit shares rose 50 cents, or 1.8 percent, to a record $29 on the Russian Trading System in Moscow, valuing the company at $2.1 billion. The stock has advanced 7.4 percent since the April 27 IPO, which raised $368 million for the company and its main owners.

Hypermarkets

Operating expenses, excluding rent, totaled 10 percent of sales, more than the company's target. The grocer aims to cut costs by shifting to longer-term rent agreements and is buying property with funds raised from the IPO, it said today.

The company also plans to open hypermarkets ``to get access to the broader base of consumers'' and will start construction on the ``six best sites in our home markets'' in September.

Magnit has outlets in more than 470 towns, most of them located in Russia's southern, central and Volga regions, and some in the northwest and the Urals. The grocer aims to open at least 250 stores annually and is focusing on cities with populations of less than 500,000 to reach consumers with average incomes, according to its Web site.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net.

To contact the editor responsible for this story: Balduin Hesse in London at bhesse2@bloomberg.net.


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